Leveraging Your Money
One of
the greatest financial aspects of buying a home is the ability to leverage your
money. Simply put, leverage allows you to use a small down payment and
financing to purchase a larger investment. For example, if you bought a $125,000
home with 10 percent down, you leveraged the $12,500 down payment to purchase
an asset worth 10 times that amount!
Appreciation
The benefits of leverage really become apparent with appreciation, or the rise
in value of a property. Using the above example, say you were to live in the
house for 5 years, and during that time property values in your area were to
rise an average of 2.5 percent a year. Your home would then be worth over
$141,000. By putting only 10 percent down, you get to enjoy the appreciation
for the full amount!
Paying
yourself
In addition to the 10 percent down, you'll also have to make mortgage payments.
But with each payment, a certain amount of money is being used to pay down the
principal balance that you owe. This is called building equity. So in the event
you sell your house, not only can you realize a profit from your leveraged
money, you also have a chance to pay yourself back for the money you've put in
over the years. No wonder so many people consider a home an excellent investment!